It works very well when it is part of the system like Savage Worlds or Cortex. The players get rewarded for playing to those hindrances/drawbacks (as opposed to punished for not playing their alignment). Without the "its evil, kill it" aspect of alignment, its fun to watch players struggle with knowing someone is the villain but they just cannot slaughter him since they do not have the proof (no Detect Evil). Its my preferred style of gaming these days.
That said, its not D&D

I always view alignment as a mechanism that lets the PC slaughter monsters by the millions and not have any guilt about it (and the player does not have to get into a moral debate about it either). You see that wall of Monster Manuals over there? That's your playground - have at it! You can attack orcs and mindflayers on sight since the're evil. Its not that they are bad, a different culture, mean, or misunderstood. They are EEEEEEVIL! You can even kill baby orcs because when you open the door to the nursery you see the Orclings torturing cute puppies and raping hapless Guinea Pigs! All the good gods endorse your actions! The alignment on the PC's character sheet is just to remind the players that they should feel guilty about killing the townsfolk and other goodly races - try not to do that! (except for Gnomes, which should be exterminated regardless of alignment)
All in all, Alignment is the grease that allows the "kick in the door, kill it, and take their stuff" cycle of D&D to flow smoothly. You can take alignment out of the game pretty easily, but it takes one of the fun things about D&D away as well (guiltless mayhem - a signature of D&D)